DraftKings (NASDAQ:DKNG) stock is higher by 16.40% over the past week — a surge fueled in large part by the company lifting its 2022 revenue outlook while cutting its full-year earnings before interest, taxes, depreciation and amortization (EBITDA) estimate. Perhaps to the delight of some investors, the gaming firm also dramatically curbed marketing spending in the April through June period.
Advertising expenditures coupled with promotional spending to lure new clients are among the primary drags on online sportsbook operators’ profitability, but over the past couple of years, operators displayed willingness to engage in this arms race, forsaking profits in the name of growth. That appears to be changing. At least for now.
Sportsbooks have spent hundreds of millions on advertising in the last year as sports gambling has been legalized in more states, but major competitors like DraftKings and Caesars Entertainment dramatically reduced ad spending in the second quarter,” according to eMarketet.
In the June quarter, DraftKings’ ad spending rose 16% to $197.5 million, but that’s well below the 270% increase notched in the same period a year earlier.
DraftKings Ad Cuts a Start, Maybe not Permanent
Underscoring investors’ disdain for profligate spending and a lengthy road to profitability, DraftKings stock needs to more than triple from current levels to reclaim its 52-week high and that’s with the shares surging 56.52% over the past month.
While the second-quarter ad cuts are a starting point, critics are apt to say that’s an ideal period for sportsbook operators to pullback on marketing spending because college basketball ends early in the quarter and the NBA season is over prior to the conclusion of June.
Analysts acknowledge DraftKings and rival operators might not be able to hold back on marketing costs for too long because college football kicks off later this month and the 2022 NFL campaign starts in September. With football being the most wagered on sport in the US, it’s unlikely gaming companies will disappear from the advertising scene in the months ahead.
There could be added impetus for sportsbook operators to spend in the second half because the World Cup runs from Nov. 21 through Dec. 18. Typically, the once-every-four-years tournament takes place in the second quarter, but owing to FIFA’s controversial decision to award the event to Qatar, it’s occurring later in the year.
Other Important Second Half Factors
While gaming companies are reining in advertising and promotional expenditures, that doesn’t mean spending of all forms is dramatically curbed.
“Some of that ad money is being diverted into politics; a California ballot initiative supported by sportsbooks like FanDuel and DraftKings that would legalize online betting was certified for the ballot in July,” adds eMarketer.
Additionally, Massachusetts and Ohio are expected to launch mobile sports betting early next year. Maryland could join that fray, too. The addition of those markets could stoke renewed ad spending not to mention the possibility of large amounts of capital directed to California if voters there approve online sports wagering.
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